Fears escalate over tumbling Twitter stock

Lauren Fedor is the chief reporter at City A.M., covering politics, banking and financial regulation.

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Lauren Fedor

SHARES in Twitter continued their downward spiral yesterday, underscoring investors’ mounting concerns over the social media giant’s future.

The company’s shares closed down 3.23 per cent, at $27.55 per share – edging ever-closer towards their 2013 initial public offering (IPO) price of $26 per share.

Twitter stock has plummeted more than 25 per cent since revealing muted user growth last week, when the company said that user numbers had risen by just two million in the second quarter, to 304m. Twitter’s biggest competitor, Facebook, reported 1.49bn active users after the second quarter.

At the time, Twitter’s finance chief Anthony Noto said that there would be no sustained meaningful growth for some “considerable” time – comments many analysts have cited to explain the cataclysmic decline in share price.

“If you have a ‘growth’ multiple, and you tell Wall Street you’re not going to grow any time soon, your stock implodes,” Hedgeye Risk Management chief executive Keith R McCullough told City A.M. Barclays’s senior US internet analyst Paul Vogel agreed, saying: “The fear is, if you are not going to grow users, what is the revenue going to look like in a few years?”

Vogel added that uncertainty over the business’s management structure is likely driving down the share price. Twitter co-founder Jack Dorsey is acting as the company’s interim chief executive. Former chief exec Dick Costolo stepped down last month.

In a note to clients earlier this week, SunTrust Robinson Humphrey analyst Robert Peck also pointed to the lack of permanent boss as the reason behind the share price drop, saying: “We think investors are questioning the current state of the CEO search and assessing the rumoured parameters, wondering if Twitter is looking for a difficult-to-find CEO candidate.”

Billions of dollars have been wiped from Twitter’s value and its market cap has slipped below $20bn since the earnings, fuelling speculation that it is ripe for takeover.

But multiple analysts told City A.M. yesterday that the company would have to come with a lower price tag before any deals were done. James Cakmak, an internet equity research analyst at Monness, Crespi, Hardt & Co, told City A.M. that there are “only a handful of companies that can actually make that kind of investment”, and that while an acquisition might make sense from a strategic point of view, it remains unclear who a buyer would be.

“It would make sense for any number of companies, but the question is, who is willing to pay a premium on top of the £20bn from today?” he said.

Twitter’s slump came as other tech stocks demonstrated similar slips: wearable tech firm Fitbit closed down 14 per cent yesterday while earlier in the week shopping site Etsy fell below its IPO price.